MONEY TREE: Ala. Tuition Program To No Longer Pay Full Cost

MONTGOMERY, Ala. (AP) — The board of Alabama’s financially troubled prepaid college tuition program approved a survival plan that would end the tradition of paying all tuition costs at public colleges and universities in the state.

The decision drew immediate criticism from the participants’ group Save Alabama PACT.

Co-founder Patti Lambert of Decatur said the decision seemed designed to undercut efforts by the group to get the Legislature to pass a bill guaranteeing tuition for the 45,000 participants.

“We’ve got representatives and senators drafting a bill to save Alabama PACT. Why have they thrown this kink into it two weeks before the Legislature starts?” she said.

The Prepaid Affordable College Tuition plan began in 1991 with parents paying a fixed amount for a child with the expectation that when the child finished high school, the state would provide four years of tuition at a state university.

The plan worked fine until tuition costs started rising faster than the board anticipated and the value of the plan’s investments plummeted to about half of the future tuition costs.

State Treasurer Kay Ivey, the board’s chairman and a Republican candidate for governor, proposed a plan Dec. 1 to turn over part of the plan’s assets to universities and have them provide tuition. Universities never embraced her plan, and the board decided to take a different approach.

It calls for paying a fixed amount for tuition, starting in fall 2010. The amount would be based on the average hourly rate that Alabama’s public colleges and universities are charging for the current school year.

In future years, the board could raise the payment amount annually based on the program’s earnings from investments rather than trying to keep pace with rising tuition costs. Its rough estimates are that payments would go up about 2.5 percent annually, while tuition would rise 7.5 percent.

Students choosing the three most expensive state universities — the University of Alabama, Auburn University and the University of Montevallo — would immediately have a financial gap between the plan’s payments and their tuition costs. Then as tuition grew in future years, students at other public colleges would experience a gap.

The initial gap at Alabama and Auburn would be more than $500 per semester. For Montevallo, it would be $345 per semester.

The plan is subject to approval by an Alabama court because it marks a change in the contracts that the state has with participants. It also requires a commitment from the Legislature to pump state money into the program — an estimated $236 million over the next two decades.

The state’s payments would start in fiscal 2013, when board members hope the state’s finances will have recovered from the recession.

Board member Daniel Hughes of Montgomery led a three-member task force that devised the plan.

He said the plan allows the program to continue rather than cashing out its assets and returning money to the 45,000 participants.

“The overwhelming sentiment of the PACT holders has been to keep the program going,” said Hughes, founder and chairman of Summit America.

He said the board hopes colleges and universities will use scholarships and student aid to close the tuition gap.

Lambert said the plan’s tuition gap seems designed to scare some participants into withdrawing their investments and look for other ways to fund their children’s education.

“They want people out of there,” she said.

Joining in the criticism were two candidates for state treasurer, who hope to succeed Ivey when she leaves office in January 2011 and turns over management of the PACT program to a new treasurer.

Birmingham attorney Jeremy Sherer said the plan “amounts to a failure of PACT and the state’s promise to PACT contract holders.”

Former state Conservation Commissioner Charley Grimsley, whose daughter is attending the University of Alabama on the PACT plan, said he will join litigation filed by other parents against the PACT board.